Texas Court strikes down federal overtime rule (Again).
For a second time in seven year, a federal Texas court has overturned a U.S. Department of Labor rule that was intended to expand the scope of overtime eligibility for workers across the nation. State of Texas, v. United States Dep’t of Labor Judge Sean D. Jordan of the United States District Court for the Eastern District of Texas decided on November 15, 2024 that the DOL had exceeded its rulemaking power by raising the salary threshold for employees who are exempt from overtime under the Fair Labor Standards Act. The DOL rule, published in April 2024 and effective July 1, 2020, increased the minimum salary required for an EAP employee to be exempt from the Fair Labor Standards Act. A second increase would’ve raised the salary threshold from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized) on January 1, 2025. The rule also increased minimum annual compensation levels for exemptions as “highly compensated employees” (HCEs)–those who perform one or more of exempt duties and responsibilities of EAP employees in a customary and regular manner–from $107 432 to $132 964 effective July 1, 2024, and to $151,164 on January 1, 2025. The rule also provided automatic triennial increases to the minimum salary for exempt status as an EAP employee, and the minimum annual level of compensation for exemption as a HCE, based on current earnings data. These increases would begin on July 1, 2027.
Flashbacks from 2017
You might remember that in May 2016, during the last year of the Obama Administration, the DOL published a new overtime regulation which more than doubled the minimum salary required for exemption as an EAP. The rule was set to go into effect on December 1, 2016, and included automatic triennial raises to begin in 2020. Amos L. Mazzant III of the Eastern District of Texas injuncted the 2016 rule nationwide less than two weeks before it was due to take effect. In August 2017, Judge Mazzant granted plaintiffs’ motions for summary judgment and declared the rule invalid, ending the case in district court.
A bridge too far
The reasoning for the rule’s demise was the same both then and now. Judge Jordan, like Judge Mazzant before him, found that job duties–not salary–are what makes someone an EAP employee, and that by elevating salary over duties to such a meaningful degree, the DOL exceeded its Congressionally-delegated authority to “define” and “delimit” the EAP exemptions. As Judge Jordan pointed out, the January 2025 increase would have represented a 65% increase from the salary level in effect before the effective date of the 2024 rule, the effects of which would have been “staggering.” In the court’s words, the 2024 rule was “designed on
face to effectively displace the FLSA’s duties test with a predominate–if not exclusive–salary-level test,” and the DOL did not have the authority to make such “sweeping changes.”
As a judge sitting in the Fifth Circuit, Judge Jordan was mindful of the Court of Appeals’ recent decision in Mayfield v. United States Dep’t of Labor holding that the DOL’s authority to “define” and “delimit” the terms of the EAP exemptions includes the power to set a minimum salary for exemption. The plaintiff in Mayfield contested the DOL’s 2019 rule that raised the minimum salary to $684 per weekly. Even though it recognized the DOL’s authority to consider salary level in defining the exemptions, the the Court of Appeals expressly noted that the authority was not unbounded:[its]Using salary as a proxy for EAP status is a permissible choice because … the link between the job duties identified and salary is strong. It does not follow that the use of a characteristic as a proxy will always be an acceptable exercise of the power of definition and delimitation. As Mayfield explains, the
can’t use a proxy characteristic to determine eligibility for the EAP Exemption
if it “frequently yields different results from the characteristic Congress originally chose”, i.e. duties. The 2024 Rule’s attempt to do this shows that the salary proxy used by the
is not defining or delimiting the original statutory words, but replacing them. Judge Jordan’s opinion and its reliance upon Loper Bright crystallizes the recent and growing assault on the administrative states–a dismantling executive agency power which has not abated in the post Chevron world. What’s Next?
If it were a year earlier, the DOL would have immediately appealed to the Fifth Circuit, arguing that Mayfield is consistent with the 2024 rule and should be revived. The DOL will not continue an appeal after January’s Inauguration because the administration is changing. It remains to be determined what a second-term Trump DOL does or doesn’t do regarding overtime. It’s not impossible that the Trump administration would support an increase above $684. The 2019 rule that raised the minimum salary to be exempt from $455 was issued during the first term of President Trump. The law allows them to roll back the salaries, but this could lead to employee relations issues. More likely than not, a number of employers that can afford to do so will leave the increased salaries where they are and simply take the 2024 increases into consideration as they make future compensation decisions.[DOL]”It Just Doesn’t Matter…”[s]Employers should bear in mind that certain states have minimum salaries for exemption that will continue to be materially higher than the minimum salary under federal law. In New York City, Long Island and Westchester County, the minimum salary to qualify for exemption is currently $1200 per week (62,400 annually). This will increase to $1,237.50 a week (64,350 annually) on January 1, 2020. In California, exempt employees must earn no less than two times the State’s minimum wage for full-time work–currently, $66,560 a year–to meet the state’s EAP employee exemption test.[DOL’s]Proskauer’s Wage and Hour Group is comprised of seasoned litigators who regularly advise the world’s leading companies to help them avoid, minimize, and manage exposure to wage and hour-related risk. Subscribe to our wage and hour blog to stay current on the latest developments.
